India’s retail inflation fell to 3.54% in July, a near five-year low, as food prices eased from previous highs due to a base effect, according to data released by the Centre.
In July, the corresponding inflation rate for rural areas was 4.10% and for urban areas, 2.98%, said the Ministry of Statistics & Programme Implementation.
The retail inflation stood at 5.08% in June, 4.80% in May and 4.83% in April.
Food inflation was the lowest since June 2023, according to the ministry. The combined Consumer Food Price Index was 5.42% in July 2024, compared to 11.51% in July 2023.
“During the month of July 2024 there is a decline in inflation for all the groups,” said the Centre in a press release. “Significant decline is in the vegetables, fruits and spices subgroup.”
Pulses saw the highest jump in price, increasing 14.77% year-on-year. This was followed by cereals, with an 8.14% inflation rate, and vegetables with a 6.83% inflation rate.
Bihar had the highest inflation rate of 5.87% followed by Assam at 5.11% and Uttar Pradesh at 4.57%.
“The bottom for core inflation is probably behind us and we see a move above 4% over the coming months,” Sakshi Gupta, principal economist at the HDFC bank told Reuters. “For headline inflation, the monsoon progress in the coming weeks will be crucial to determine whether food inflation shocks subside.”
The latest data comes after the Reserve Bank of India’s Monetary Policy Committee on August 8 decided to keep the repo rate unchanged at 6.5% for the ninth time in a row.
The repo rate is the interest rate at which the central bank lends money to commercial banks. The Monetary Policy Committee decides on changes to it every two months.
Central banks usually increase key lending rates to control inflation. Higher key lending rates translate into high interest on loans disbursed by commercial banks. This, in turn, keeps a check on discretionary spending by consumers which is expected to help curb prices rise due to high inflation. However, a higher repo rate also means that the borrowers pay more interest on their loans.